In the world of real estate, you never know what is on the horizon. There are plenty of times when situation is thrown on your lap completely out of the blue with unfamiliar circumstances. Such can the case with inherited properties. Dealing with an inherited property or a property in probate can be one of the most difficult, and time consuming processes you can go through. Because of the many laws and red tape associated, an inherited property can take months before title changes hands. When it finally does you can be left with a property that hasn’t been updated in years and is in dire need of maintenance. This puts you in the proverbial “catch 22” of not knowing exactly what to do with the property to maximize the bottom line. Here are the five biggest challenges to selling an inherited property with deferred maintenance.
Limited Capital to Fix Up:
In a perfect world you would have access to unlimited capital and do whatever work is needed on the property. Unfortunately, this may not be the case. Money may be tied up in other properties, your line of credit may be maxed, or you simply don’t have the capital to do the work the property requires. Without enough funds, you won’t be able to make the improvements you desire which will leave you with limited selling options. There is little question that buyers almost universally want to buy a turn key property, unless they are getting a severe discount. If you don’t make improvements your buyer pool will be limited, and it will be reflected in your sales price. You can try finding capital through credit cards, private lenders or short-term partnerships but each of these options have drawbacks and will diminish your bottom line.
High Carrying Costs:
The biggest issue with hanging onto the property for any period of time are the carrying costs. Every month you own the property you must cover the property taxes, insurance, utilities and a slew of other expenses. This is not to mention the payment to your attorney for their work on the probate and any other fees along the way. By not selling right away you can quickly get behind the eight ball, forcing more desperation and prompting you to make decisions with the property you normally would not. What you may think you are saving by not initially making improvements you end up losing by carrying the property.
Selling A Property That Needs Work:
If you don’t have capital to make improvements, you are forced to sell the property in as is condition. You essentially defer the responsibility of the improvements from you to the buyer. This creates numerous problems for many reasons. As we stated, your buyer pool will immediately decrease. Many buyers don’t have the desire, or financial wherewithal to throw money into a new home purchase. Buyers are having a tough enough time coming up with any significant down payment let alone money for improvements. This leaves you with a buyer pool of investors and buyers looking for a discount. On the surface you may think that any profit you can get from an inherited property is a bonus. In reality there are many fees and expenses that are associated that need to be recouped. Additionally, if the inherited lacks equity your bottom line won’t be nearly as big as you may think. With an as is sale you will most likely have to pick the best of potentially low cash offers.
If you’ve Inherited a property and would like to know more about your options and how we can help, contact us today!
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